Tag Archives: liberalization

Marine Le Pen (right) has worked to detoxify the brand of the Front national, but will it be enough to form a majoritarian coalition in France? (Facebook)

Emmanuel Macron should not be such a difficult candidate to defeat in the French presidential election.

Set aside the weird personality cult that gushes over Macron’s youthful good looks, or the popular movement, En Marche! that shares the candidate’s initials (E.M.) and that translates to ‘Forward!’ — a schlocky political trick for an electorate that prides itself on sophistication.

Set aside that the 39-year-old rising star has never technically won an election to anything in his life.

Set aside the gaffes — going to Algeria and calling French colonization a ‘crime against humanity’ or criticizing the same-sex marriage law that he said ‘humiliated’ traditional Catholic voters.

Set aside the nasty rumors about his personal life or the wife 24 years his senior (and yes, they are out there).

Why Macron is far weaker than polls currently show

Though Macron is in a commanding position with a month to go until voters first go to the polls, he is the product of two of the most elite educational institutions, Sciences Po and the École nationale d’administration, and before entering politics, he was an investment banker at Rothschild. He represents a strain of neoliberal economic policy that commands lower support today than ever — the Atlantic right is moving toward economic nationalism and the Atlantic left is moving to more aggressive taxation and deeper social welfare programs.

Macron, for all intents and purposes, is the avatar of the French political elite, amid a global climate where voters are rejecting elites. That’s even compared to a former prime minister, François Fillon, the center-right candidate of Les Républicains, or to a former education minister Benoît Hamon, the social democratic candidate of the Parti socialiste (PS, Socialist Party).

In January 2014, the Shanghai Composite Index was hovering at around 2,000.

Today, it’s ‘down’ to just above 3,600 and everyone from Beijing to London is gnashing teeth and wrenching hands over the great Chinese stock market crash of 2015.

However, in the light of the massive gains of the past two years, the current bear market seems more like a correction than a crash. You wouldn’t know it, though, from the response of China’s one-party state, which has intervened in just about every way imaginable to prop up the equities market.

Part of the anxiety, both in China and abroad, is due to the country’s role in the global economy — as the era of double-digit annual growth slows to ‘just’ 6% or 7% growth, global demand from the world’s largest economy will invariably slow. That will have a global impact. But no one expected China to grow at spectacularly outsized rates for decades without end, and that alone isn’t necessarily enough to torpedo the US or European economies. The ups and downs of China’s wild stock markets, moreover, aren’t necessarily correlated with long-term economic growth. That doesn’t obviate some of the real harms suffered by largely unsophisticated retail investors who dumped their savings into Chinese stocks during the rally of the past year and a half.

This underlines that the real crisis is political, not economic. Under pressure to ‘do something,’ the Chinese Communist Party (中国共产党) is doing a little of everything — devaluing the yuan, halting new IPOs, prohibiting trading in some of the hardest-hit stocks, buying stock in an attempt to keep prices artificially high, cutting interest rates. Certain institutional investors will not be permitted to trade (i.e. sell) stocks for up to six months.

It’s a panicky response that only further perpetuates the ‘crash’ narrative and further sell-offs. But it’s also the response of a governing regime that knows — and knows that the Chinese people know — there’s no competing political party to blame. Chinese leaders often argue that the one-party system incentivizes long-term policy planning because there’s no short-term gains to be had from elections every two years. But the acute knowledge that the Communist Party owns every policy (and every policy misstep) cuts both ways. The current stock market turbulence shows that Chinese Communists, just like American Republicans or Democrats, aren’t above taking hasty steps to end short-term political pain. Continue reading China’s stock market crash is a political, not economic, crisis→

Earlier this week, Indian prime minister Manmohan Singh announced his choice to head the Reserve Bank of India — Raghuram Rajan, a University of Chicago economics professor who’s perhaps best known for cautioning in 2005 that the financial system was headed toward a collapse.

But when Rajan takes over as RBI governor in September, he will also immediately become one of the chief actors in determining the outcome of India’s scheduled May 2014 national elections. While the world is naturally asking the question, ‘How will Rajan strengthen the rupee?’, it should also be asking, ‘How committed is Rajan to helping Singh’s Congress Party win a third consecutive election?’ and ‘What kind of relationship might Rajan have with prime minister Narendra Modi?’

Rajan will certainly face pressure from within the current government to help ease the economy into the 2014 election, perhaps by lowering the RBI’s bank interest rate from 7.25% to spur growth over the next eight months. But Rajan’s more immediate problem is arresting the Indian rupee’s 12% decline in the past three months, not to prop up Singh’s government, and it’s not even clear that Rajan can do anything to boost growth without exacerbating other problems. Furthermore, Rajan’s long-term interest in liberalizing India’s economy will also give Modi a powerful ally if elected.

India’s current United Progressive Alliance (UPA) coalition government is unpopular and Singh, India’s prime minister since 2004, will cede the spotlight to Rahul Gandhi, a somewhat lackluster fourth-generation member of the powerful Nehru-Gandhi family that dominates the ruling Indian National Congress (Congress, or भारतीय राष्ट्रीय कांग्रेस). One of the reasons that Singh and Congress are so unpopular is the slowdown in India’s economy over the past five years — GDP growth has dropped from a galloping 8.5% in 2009 and 10.5% in 2010 to just 6.3% in 2011, 5.4% in 2012 and an estimated 5% or so in 2013.

Furthermore, Singh has not been as successful as prime minister in enacting the kind of ‘big bang’ liberalization reforms as he was in the early 1990s, when Singh served as finance minister under prime minister P.V. Narasimha Rao. Singh’s push last year to liberalize India’s retail sector and to cut fuel subsidies, met with fierce resistance from just about everyone in India — the political left in his own coalition, including West Bengal chief minister Mamata Banerjee, who withdrew her support from Singh’s government; the political right, which supported reforms when it was in power in the early 2000s; and India’s labor unions and India’s many small shopkeepers. While Singh deserves credit for enacting the retail reforms, they fall far short of what Singh was expected to have accomplished when he took office nearly a decade ago.

Modi is the longtime chief minister of Gujarat, a state that boasts a particularly strong economic record, and he exudes more energy than just about anyone in Singh’s government these days. Modi will lead the conservative, Hindu nationalist Bharatiya Janata Party (the BJP, or भारतीय जनता पार्टी) into next year’s election. Though he remains controversial within India and abroad due to his role in Hindu-Muslim rioting in 2002, he stands a good chance of becoming prime minister. Modi is certainly enthusiastic about further liberalization reform in India, which makes Rajan a natural ally. While there is certainly room for much more liberalization in the Indian economy, there are plenty of protectionist voices within the BJP (many of whom objected to Singh’s retail market reforms), to say nothing of Congress and more leftist Communists in the Indian parliament, who are certain to oppose reform.

Ironically, it could be Modi who finishes the work that Singh-the-finance-minister began.

Also ironically, it could be Singh’s appointment this week that hands Modi a key ally within the central bank to enact more liberalization.

None of that will necessarily matter, however, if Rajan cannot stop the rupee’s plummet in value, which has made it more expensive for India to import oil and other goods. That has created two immediate problems for India’s economy.

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Suffragio attempts to bring thoughtful analysis to the political, economic and other policy issues that are central to countries outside of the US -- to make world politics less foreign to the US audience. Suffragio focuses, in particular, on those countries and regions with upcoming or recent elections.